Asked by Andrew Young on Jun 08, 2024
Verified
Permanent value declines in available-for-sale securities should be
A) recorded in the allowance account
B) included in income as a realized loss
C) amortized over the remaining life of the security
D) recorded similarly to temporary declines in value
Available-For-Sale
A classification of financial assets indicating that they are not actively traded but can be sold to meet liquidity needs.
Realized Loss
Occurs when an asset is sold for less than its carrying amount on the books, representing an actual loss of capital.
- Discern the differences between temporary and other-than-temporary declines in the value of investments and their accounting treatment.
Verified Answer
JB
Joshua Bortey BortierJun 11, 2024
Final Answer :
B
Explanation :
Permanent value declines in available-for-sale securities should be included in income as a realized loss. This is because available-for-sale securities are not held until maturity and therefore any declines in their value should be recognized in the income statement. The allowance account is used for temporary declines in value, while amortization over the remaining life of the security is not appropriate for permanent declines in value.
Learning Objectives
- Discern the differences between temporary and other-than-temporary declines in the value of investments and their accounting treatment.
Related questions
The Copper Company Has a Bond Investment Classified as Held ...
Ralmond Industries Owns an Investment That Experienced a Decline During ...
Most Companies Invest Excess Cash in Bonds as Investments in ...
Long-Term Investments Are Usually Held as an Investment of Cash ...
Cash Equivalents Are Investments That Are Readily Converted to Known ...